At the Corner of Happy and Healthy 2012 Annual Report Experience At Walgreens, we’re on a mission Walgreens to help customers get, stay and live well. To do that, we’re making health and happiness more acces- 2012 Milestones sible to more people every day. We’re bringing our pharmacists • Walgreens is the nation’s largest drugstore chain, with fiscal 2012 net sales of $71.6 billion and net earnings of $2.1 billion. The Company has 240,000 employees. out from behind the counter, so customers can get the expertise • Cash flow from operations for fiscal 2012 was a record $4.4 billion, with free cash flow also setting a record of $2.9 billion. they need to feel a little more • The Company continued to return significant cash to shareholders, with $1.2 billion healthy. Our in-store beauty in share repurchases and $787 million in dividends. advisors help shoppers find the • The Company announced a truly game-changing, strategic partnership with perfect shade of lipstick for a Alliance Boots to create the first global pharmacy-led, health and wellbeing little boost of happy. Our online enterprise. Walgreen Co. closed on the first phase of the transaction in August, acquiring a 45 percent stake. store and apps bring customers instant access to an endless • In July, the Company signed a multiyear agreement with Express Scripts, consistent with our principles, to participate in its broadest retail pharmacy aisle of products and advice, network. On September 15, customers began returning to Walgreens. like live chat with a pharmacist. • The Company also recently launched its innovative BalanceTM Rewards loyalty And our new loyalty program – program, its next significant step in making Walgreens the first choice for Balance Rewards – offers happy health and daily living. savings and healthy incentives • To continue to expand and integrate our pharmacy, health and wellness offering, in perfect balance. Walgreens acquired USA Drug, Crescent Pharmacy and certain assets of BioScrip, adding pharmacy locations in the U.S. mid-South, and additional infusion and specialty pharmacy services to its portfolio. Walgreens. At the Corner of • Walgreens continued the expansion of its Well Experience pilot format with nearly Happy and Healthy™ 350 stores opened across the chain by the end of fiscal 2012. In addition, the Company now has flagship stores in Chicago, New York, Las Vegas and Puerto Rico, with additional locations planned for fiscal 2013. • The Company continued to develop its multichannel capabilities with new mobile innovations. With Transfer by Scan, customers can transfer prescriptions using their mobile device. QuickPrints helps customers print mobile phone photos in just one hour, and In Store Maps makes items easy to find at any Walgreens location. • Walgreens was named to Fortune magazine’s World’s Most Admired Companies list for the 19th consecutive year, and was ranked 32nd on the Fortune 500 list of largest U.S.-based companies. About the Cover Under the watchful eye of his mother, 2-year-old Caetano Hinojosa feels better already, with the help of his neon purple Walgreens brand bandage. Walgreens is currently updating its branding on more than 2,000 private brand health and wellness products. Through consistent packaging and product messaging, the rebranding will reinforce the Company’s purpose to help people get, stay and live well. Financial Highlights For the years ended August 31, 2012 and 2011 (In millions, except per share amounts) 2012 2011 Increase (Decrease) Net Sales $71,633 $ 72,184 (0.8%) Net Earnings (1) $ 2,127 $ 2,714 (21.6%) Adjusted Net Earnings (2) $ 2,565 $ 2,710 (5.4%) Net Earnings per Common Share (diluted) (1) $ 2.42 $ 2.94 (17.7%) Adjusted Net Earnings per Common Share (diluted) (2) $ 2.93 $ 2.93 — Shareholders’ Equity $18,236 $ 14,847 22.8% Return on Average Shareholders’ Equity 12.9% 18.6% Closing Stock Price per Common Share $ 35.76 $ 35.21 Total Market Value of Common Stock $ 33,759 $ 31,312 Dividends Declared per Common Share $ .9500 $ .7500 Average Shares Outstanding (diluted) 880 924 (1) Fiscal year 2011 amounts include a $273 million, or $0.30 per diluted share, after-tax gain on the sale of Walgreens Health Initiatives, Inc. (2) This is a non-GAAP measure. See Reconciliation of Non-GAAP Financial Measures on page 44. Company Highlights 2012 2011 2010 2009 2008 Locations Openings New Locations 212 261 388 602 608 Acquisitions 54 36 282 89 423 Closings 91 133 120 129 94 Net Openings 175 164 550 562 937 Locations (1) 8,385 8,210 8,046 7,496 6,934 Sales Area (2) 87,049 85,619 83,719 78,782 72,585 Product Class Sales Prescription Drugs 63% 65% 65% 65% 65% Non-prescription Drugs (3) 12% 10% 10% 10% 10% General Merchandise (3) 25% 25% 25% 25% 25% (1) Includes drugstores, worksite health and wellness centers, infusion and respiratory services facilities, specialty pharmacies and mail service facilities. (2) In thousands of square feet. (3) Based on store scanning information. Walgreens Fiscal Year Stock Performance Fiscal year-end closing price per share in dollars 50 40 30 20 10 0 03 04 05 06 07 08 09 10 11 12 2012 Walgreens Annual Report 1 50 40 30 20 10 0 Letter to Shareholders Gregory D. Wasson (left) President and Chief Executive Officer James A. Skinner Chairman of the Board Walgreens: Where health and happiness meet more than 100 years. It also positions our Company for short- and long-term growth in three major ways: Dear Shareholders: • Accelerates our key growth strategies. Bringing together the strengths We are excited to bring you up to date on the bold new direction and expertise of each company will drive forward Walgreens strategies Walgreens is taking to help ensure market leadership, growth and to: 1) transform the traditional drugstore to a health and daily living profitability well into the future. destination; 2) advance community pharmacy; 3) delight our customers Four years ago, Walgreens launched one of the most important strategic with an outstanding experience through enhanced employee engagement; and operational transformations since our founding in 1901, driven by a 4) expand across new channels and markets; and 5) reinvent our cost series of growth strategies. As we continue to advance these strategies, structure through continuous improvement and innovation. we have made substantial progress in our transformation. And fiscal 2012 • Creates an unmatched supply chain. Together, Walgreens and Alliance was a breakthrough year in this transformation as we expanded globally Boots have the largest pharmaceutical wholesale and distribution and digitally, turned drugstores into health and daily living destinations, network in the world, including associates and joint ventures, with more emerged as a leading force in community healthcare, and launched a than 370 distribution centers, delivering to more than 170,000 pharmacies, groundbreaking customer loyalty program called Balance™ Rewards. doctors, health centers and hospitals in 21 countries. We’ll also be the Today, Walgreens is much more than a traditional drugstore – we’re fast world’s largest single purchaser of prescription drugs and one of the largest becoming a global pharmacy-led, health and wellbeing enterprise inspired global buyers of many health, beauty and other daily living products. by a humble purpose: To help people get well, stay well and live well. • Provides a platform for global expansion beyond the U.S. and Europe. By pursuing our purpose, Walgreens seeks to own the strategic territory Walgreens is already the largest pharmacy chain in the United States, of “well,” the place where health and happiness come together for our and Alliance Boots is the leading pharmacy-led, health and beauty group customers. That intersection is both a physical place – with Walgreens across Europe, with a fast-growing presence in emerging markets. 8,000 stores on some of the best corners in America – and also a virtual Together, the Walgreens–Alliance Boots global pharmacy-led, health place with constant advances in online and mobile access. and wellbeing platform is positioned for selling and distributing products in 26 countries through a supply chain unmatched in the industry. In short, by helping people to get, stay and live well “at the corner of happy and healthy,” we can achieve our goal to become “My Walgreens” The strategic partnership with Alliance Boots also is expected to unlock for everyone in America, the first choice in health and daily living. significant economic value for shareholders, as Walgreens goal is for the combined synergies across both companies to deliver $100 million Creating the first global pharmacy-led, health and wellbeing enterprise to $150 million in the first year and $1 billion by the end of 2016. In fiscal 2012, Walgreens further crystallized and accelerated our strategic We also expect the transaction to be accretive to Walgreens net earnings transformation with dynamic new initiatives and disciplined execution. per diluted share in fiscal 2013 by roughly $0.23 to $0.27, excluding Through this strategic focus, Walgreens has established a strong platform one-time transaction costs. for growth and long-term value creation, both globally and in expanded While fiscal 2012 was marked by the Alliance Boots transaction and lines of business. other strategic breakthroughs, it also brought significant headwinds. The most powerful accelerant of our growth strategies this year was the First, overall economic conditions remained weak, affecting consumer strategic partnership we announced in June 2012 with the Swiss-based spending. Second and more significantly, since January 2012, we made Alliance Boots GmbH, to create the world’s first pharmacy-led, health a strategic decision that Walgreens would not participate in a major and wellbeing enterprise. pharmacy benefit network, Express Scripts, as we were unable to reach a The Walgreens–Alliance Boots partnership combines the strengths and contract agreement that provided fair reimbursement for the pharmacy, expertise of two iconic brands with complementary geographic footprints, health and wellness services we provide.